Five Years of handicap for the UK food industry

Five years since the United Kingdom officially left the European Union, Britain’s food exporters and importers are still grappling with new barriers, a costly divorce settlement, and considerable uncertainty. As January marks half a decade since the Brexit transition period began, multiple studies show that British businesses—especially in the fresh produce and agricultural sectors—have been hit hard.

UK government fails to secure affordable quality food

Nigel Jenney, Chief Executive of the UK’s Fresh Produce Consortium, warns: “The industry and UK consumers are yet to see the widespread and significant financial impact on fruit and veg imports from the EU commencing July 25. "It’s deeply frustrating, as we’ve offered effective solutions. However, the previous and current governments simply ignore our fundamental concerns and the avoidable widespread impact on imports, exports and UK horticultural production. For Nigel the government self-imposed border solutions are not fit for purpose and prevents from feeding the nation with good quality affordable food. As example Marks & Spencer has rented a warehouse just to store the extra paperwork required for EU trade. Across agriculture, horticulture and fishing, key sectors are feeling the squeeze of the new bureaucracy.

Brexit reduced UK exports by 13,2% to the EU

A recent paper from the Centre for Economic Performance (CEP) at London School of Economics (LSE) found that, in 2022 alone, goods exports from the UK dropped by £27bn of 6,4%, due to a 13,2% fall in the value of foods exported to the EU. Much of the impact is felt by small food producers, while additional import checks loom for fresh produce entering Britain. The CEP surveyed more than 100,000 firms. It found that 14% of firms (around 16,400 firms) that had previously exported to the EU stopped doing so after the Trade and Cooperation Agreement between the UK and the EU (TCA) came into force in January 2021.

UK imports from the EU reduced £20 billion

The TCA also reduced imports from the EU. But this decline was partially offset by higher imports from outside the EU. The researchers estimate that the TCA reduced total imports from all countries by 3.1%, which is equivalent to £20 billion lower imports in 2022. The research is the first to study the impact of Brexit on trade using customs records collected by HMRC. Using customs data to analyse trade at the firm-level generates new insights into the consequences of leaving the EU’s single market and customs union, and highlights how larger firms have adjusted to the new trade relationship better than small and medium sized firms.

Smallest firms reduced 30% shipments

Most of the firms whose exporting business has suffered are smaller ones. To assess the effect by firm size, the authors split firms in their sample into five groups based on the number of employees. Among firms that continued exporting to the EU, the TCA reduced the average value of EU exports by 30% for the smallest fifth of firms (with six or fewer employees) and by 15% for the middle fifth (between 17 and 40 employees). By contrast, exports by the top fifth of firms, those with more than 107 employees, were not affected by the TCA. The success of larger firms in maintaining their export levels dampened the decline in aggregate trade.

A disaster for small exporters

Kalina Manova, co-author and professor of economics at UCL, said: “The TCA has disrupted firms’ relationships with firms they export to and import from. Firms’ performance in the medium to long run will hinge on their ability to maintain supply networks and diversify export demand in the face of higher and uncertain non-tariff barriers to EU trade."  Thomas Sampson, co-author and associate professor of economics at LSE, said: “The TCA has been a disaster for small exporters, many of which have simply stopped exporting to the EU. At the same time, larger firms have adapted well to the TCA.

Sources: LSE and FPC.